Musicians, Restaurants, and Plumbers

An opinion piece this week designed to get your backs up and make you think. You read a lot of brouhaha these days about how musicians are not making any money out of streaming services. There are so many streaming services available – some even offer high-resolution lossless content – and much like Netflix in the video domain, we as consumers can now access a lot of content for a nominal (i.e. affordable) outlay. How, you might wonder, can the musicians who create the music in the first place be making any money out of it?

Recently, a study has been doing the rounds which purports to analyze the revenues of the streaming service Spotify, and indicates how that revenue is divvied up among the Streaming Service itself, the Record Labels, the Writers/Composers, and the Artists. The report is available on the web site of Music Business World, and was prepared by the accounting firm Ernst & Young, so it has at least a minimum acceptable level of credibility.

Ask yourself this – according to the report, for every dollar you spend on Spotify, just how much of it ends up in the pocket of the artist whose music you are listening to? Before you go on to read the the answer, I want you to ponder the issue for a moment and ask yourself how much you think OUGHT to go to the artist? Also, stop for a moment to consider the rationale behind your calculation, so that it is a little bit more than a number you pulled out of thin air. On what basis should the artist receive whatever it was that you thought was appropriate?

So what did you come up with…? 50 cents? 20 cents? 10 cents? The actual answer is less than 7 cents. Not seven cents every time you listen to a track, but 7 cents out of every dollar you spend. If you subscribe to their premium service that’s about $10 a month. So your subscription to Spotify generates 70 cents a month to be shared among all of the artists that you listen to. Lets imagine that you listen to 20-25 tracks a day, and lets assume that the money gets split evenly among the artists on a per-play basis. In that scenario you are playing about 700 tracks a month. So each time you play a track, the artist you are listening to earns something like one tenth of one cent.

In some circles, this has aroused the anger of musicians who feel that the Spotifys of this world are screwing them out of their rightful earnings. First Napster, then bit torrents and file sharing, and now this!

There are two problems with this. The first is that, as best as anyone can tell, none of these streaming services are actually making any money! It is one thing to argue a case against someone who is making scads of money off the backs of others, but another thing entirely to vent your spleen at someone who isn’t even profitable – unless your complaint is about the lack of any profit itself, which isn’t the case here.

Can it really cost that much money to run Spotify? Which brings me to the second problem. What happens to all the money that you pay to Spotify? The answer is that Spotify in turn pays the majority of it in fees to the labels. Spotify pays about 17 cents on the dollar in taxes, and uses 20 cents to run its own operations. The rest – amounting to nearly two-thirds of their revenues – is paid directly to the Record Labels who manage the distribution to the Artists. In other words, Spotify doesn’t get to decide how much of their take goes to the Artists – that is entirely within the purview of the Record Labels themselves.

So now, lets take a look at the money that the Labels receive. How do they distribute that? According to the Music Business World report only 10% of what they receive goes to the Artists, and 15% goes to the Songwriters and Publishers, which means that the Labels keep a whopping 75% of the pie for themselves. That’s a lot of pie.

It is therefore wrong-headed for the Angry Artists to get all stroppy about Spotify eating their lunch. It is the Labels who are doing all the munching. And it has been thus for as long as there has been a music industry. But, the argument goes, it is a different world in 2015. Labels used to have to pay for record stamping plants, or even CD stamping plants. They has to maintain a sales force to get their product stocked by the music stores, and a promotional force to get their customers into the stores. Plus the costs of transporting the product internationally. Today this doesn’t happen any more. All of the above is theoretically replaced by an “Upload” button that someone has to punch.

But even taking all of that into account, it still misses the point entirely for the Artists to be taking pot shots at the Labels. If the Artist feels that the Label is charging too much for what they provide, then their solution is simple – they don’t have to sign with a Label. Like just about any transaction, if you don’t like the price, you don’t have to make the purchase. Unfortunately, though, for the majority of Artists, they don’t even have the option to not sign for a Label. The reality is that as an Artist you hope to generate enough buzz that a Label – any freakin’ Label will do! – will deign to offer you a deal. The idea that you can shop around and choose the one that offers you the best deal is a pipe dream for all but the privileged few.

For the Artist, what are the alternatives? The obvious one is that they can start their own Label. Sure they can … there’s nothing to stop them. Well, except one thing. You’ll need some money. And as an Artist without a record deal capable of putting one tenth of a cent in your pocket every time someone plays one of your tunes on Spotify, you won’t actually have any money.

The view from the other side of the fence is not all roses either. As a Label, you are hopefully making money from your roster of Artists. But they come and go, as do their sales. You always need to be replenishing your portfolio. For every new Artist that you have a budget to take on there are a hundred who are convinced that they are The One. You need to be really smart about which ones you sign and which ones you pass on. After all, you’re not as dumb as the Decca executive who passed on The Beatles because guitar music was going out of style, are you?

Once you’ve signed a new Artist you are going to need to pay for some studio time to record their new album. You’ll need to pay people to design the cover work and take publicity shots. You’ll probably need professional video work doing. You’ll need to schedule radio and TV spots if you’re sufficiently gung-ho about their prospects. And you’ll need to cut that deal with Spotify. All that expense must be incurred without any guarantee that you’ll ever get a penny in return. And for every Artist who generates a handy revenue stream for you, there will be four or five who fail to make any sort of impact at all. On top of it all, it may be you who screws up. The Artist may leave you and sign for another Label, and under their guidance hit the big time.

For this reason, most Labels are very controlling when it comes to their stable of Artists. They will control a large part of the product, how it sounds, whose arrangements are used – they’ll even kick out members of the band and bring in better session musicians. If they don’t like your songs they’ll use their own songwriters. The Labels are in the business of knowing what will sell and what won’t. They won’t always get it right, but like a profession stock trader, they’ll get it right way more often than you will. Even the poor sod at Decca who turned down The Beatles (his name was Dick Rowe) went on to sign The Rolling Stones. Consequently, the Artists very soon find out exactly where on the totem pole a place has been reserved for them, even as their backs are being patted and their egos inflated.

So, as a musician, if you can do all that then you don’t need the services of a Label, and you’ll make ten times as much from Spotify as you might otherwise have done. If not, then you have little choice but to work within the established Label system if you can get one sufficiently interested. Otherwise, as one certain Norman Tebbitt might have put it, you should consider getting ‘on yer bike’ and finding a proper job 🙂

Here’s the thing about musicians in particular, but Artists generally. You are only an Artist while you are creating art for your own personal satisfaction. As soon as you aim to sell it for even a modest profit you become a businessperson, no different from a restaurant owner or a plumber. Its a dog-eat-dog world, whether you’re selling art or amplifiers, and you need to have a minimum of business savvy if you are going to survive in it. You need to identify smart things to do and dumb things to avoid doing. The world has little sympathy for poor businesspeople. And it won’t pay $10 for something if there is something else it thinks might be just as good priced at $9.95. Don’t take my word for it. Spend some time in Walmart.

My advice to musicians who fret about how much they are getting from Spotify is simple. You are businesspeople first and foremost, and you had better start looking at yourselves in that light. Would you open a paint store that only sold green paint? I know I wouldn’t. The thing about business is that sometimes the best thing to do is not the same as the thing you really wanted to do. If you can’t – or won’t – see that, then your prospects for success will have a lot in common with buying a lottery ticket. Which is fine, because most of us do not make particularly good businesspeople, and rarely win the lottery. In which case you should go back to being an artist, and create art for no purpose other than your own satisfaction – in your spare time of course, since you’ll have a ‘proper’ job to do as well.